SPECIAL ORDER PAR FOUR Company produces golf balls that it distributes through sports outlets in shopping centers and malls in the United States. It has a capacity to produce 2 million balls per month. But its current sales volume is only 800,000 balls. The regular selling price is $1.25 a ball. The monthly manufacturing costs to produce this sales volume average around $480,000, of which $320,000 is fixed cost. The company receives a special order from Philippine Golf Company (PGC) for 500,000 “special label” golf balls per month. The balls would be imprinted with PGC name and logo and would not in any way be identified with PAR FOUR. PGC has agreed not to sell these balls outside the Philippines and it is willing to pay PAR FOUR $250,000 per month for the special order. Would it be profitable for PAR FOUR to accept this order?
- SPECIAL ORDER
PAR FOUR Company produces golf balls that it distributes through sports outlets in shopping centers and malls in the United States. It has a capacity to produce 2 million balls per month. But its current sales volume is only 800,000 balls. The regular selling price is $1.25 a ball. The monthly
The company receives a special order from Philippine Golf Company (PGC) for 500,000 “special label” golf balls per month. The balls would be imprinted with PGC name and logo and would not in any way be identified with PAR FOUR. PGC has agreed not to sell these balls outside the Philippines and it is willing to pay PAR FOUR $250,000 per month for the special order. Would it be profitable for PAR FOUR to accept this order?
2. RESOURCE CONSTRAINT
Dante’s Studio creates three labor-intensive products: (1) watercolor paintings, (2) oil paintings, and (3) custom frames. Water color paintings require 2 direct labor hours, oil paintings require 4 direct labor hours and custom frames require 1 direct labor hour. The Studio’s output is limited to what it can produce for 6,000 labor hours. The unit price and unit variable cost for each product is shown below:
|
Product |
Unit selling price |
Unit variable costs |
|
Water color paintings |
P4,500 |
P1,500 |
|
Oil paintings |
P8,000 |
P3,000 |
|
Custom frames |
P1,750 |
P 750 |
3. MAKE OR BUY
Sandara Company can buy for P250 per unit component Z of its final product that costs the company P300 per unit to produce. Its required volume for Z is 10,000 units per month and manufacturing costs for said volume are as follows:
Raw materials for Z P 400,000
Direct labor P 625,000
Variable
Fixed overhead per month P 1,475,000
If the company decides to buy from outside, it could eliminate P450,000 of its variable overhead and P125,000 of its fixed monthly overhead.
4. PROCESS FURTHER
Delta Division of a chemical company, operates a joint process that results in two products, X and Y. Each 1,000 kilos of materials yields 600 kilos of Product X and 400 kilos of Product Y. Delta has options, to sell both products at the split-off point or process further each product. Selling price and cost data per batch of 1,000 kilos of materials are as follows:
Product X Product Y
Selling price at split-off point P 100/kg P200/kg
Selling price after additional 300/kg 250/kg
Variable costs of additional 75/kg 62.5/kg
processing
Additional processing will almost surely require space, equipment, and people. Some of those might be avoidable. Let us assume that further processing of Product X requires avoidable fixed costs of $10,000 per month and that Delta usually processes ten batches per month.
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